Florida Department of Revenue

[Pages:26]Florida Department of Revenue

Motor Vehicle Dealer Standard Industry Guide

Standard Industry Guide

Motor Vehicle Dealer

PURPOSE

This guide provides an auditor with information on the subject industry. This information will assist an auditor in recognizing areas to test for compliance with Florida sales and use tax laws.

After reviewing this guide, an auditor will be better able to understand issues involving:

? Tax implications affecting the subject industry; ? Sales tax issues likely to surface relating to the subject industry; and ? Relevant statutes, rules, court cases and other technical documents

Helpful tax publications provided by the Department of Revenue available online (See hyperlinks):

Industry Specific:

Sales and Use Tax on Motor Vehicles Tax Information for Motor Vehicle Dealers

General:

Sales and Use Tax Guide for Business Owners Audit Information Florida Sales and Use Tax Discretionary Sales Surtax Sales and Use Tax on Tangible Personal Property Rentals

These reference materials and the technical documents cited herein have been provided as informational guidelines for performing tax audits and are intended to be used as internal management memoranda. They are not rules, orders, or policy statements of general applicability, and as such, do not represent the formal position of the Florida Department of Revenue. No representation is made regarding the Department's opinion of the precedential value of the court cases cited herein. They are provided for informational purposes only. Statutes, rules, court cases, or other technical documents subject to change are current as of the publication date of this document. Refer to the Tax Law Library for an updated listing of such documents. The Tax Law Library can be accessed through the Department of Revenue web site: or directly at

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TABLE OF CONTENTS

Motor Vehicle Dealer

OVERVIEW OF METHODS OF OPERATION ............................................................................................. 4

NEW CAR DEALERS........................................................................................................................................ 4 USED CAR DEALERS....................................................................................................................................... 4 REPAIR FACILITIES ......................................................................................................................................... 4 VEHICLES FOR LEASE AND/OR RENTAL .......................................................................................................... 5

ACCOUNTING SYSTEMS ............................................................................................................................... 5

REGISTRATION .............................................................................................................................................. 6

SPECIAL CONSIDERATIONS ....................................................................................................................... 6

COLLECTION AND COMPUTATION OF TAXES DUE .......................................................................................... 7 TRADE-IN ALLOWANCES ................................................................................................................................ 8 SALES OF VEHICLES TO RESIDENTS OF OTHER STATES .................................................................................. 8 SALES AND LEASES OF MOTOR VEHICLES TO FOREIGN DIPLOMATS AND CONSULAR EMPLOYEES ................ 9 DEALER LICENSE PLATES............................................................................................................................... 9

REPAIR CENTERS .......................................................................................................................................... 9

LEASED VEHICLES...................................................................................................................................... 10

TRANSFEREE LIABILITY ........................................................................................................................... 12

SERVICE WARRANTIES .............................................................................................................................. 12

VEHICLES NOT HELD FOR RESALE ....................................................................................................... 13

OTHER CONSIDERATIONS ........................................................................................................................ 13

DISCRETIONARY SALES SURTAX (DSS) ....................................................................................................... 14 MOTOR VEHICLE DEALER LOCATED IN SURTAX COUNTY ........................................................................... 15 MOTOR VEHICLE DEALER LOCATED IN A COUNTY NOT IMPOSING A SURTAX ............................................. 15 SOLID WASTE FEES ...................................................................................................................................... 15 FEES IMPOSED ON THE SELLER ..................................................................................................................... 15 EXEMPT SALES OR SALES FOR RESALE ........................................................................................................ 16 CREDITS FOR RETURNS AND EXCHANGES .................................................................................................... 17 MOTOR VEHICLE WARRANTY ENFORCEMENT ACT (MVWEA) (LEMON LAW) ........................................... 17 REPLACEMENT OF MOTOR VEHICLE (LEMON LAW) ..................................................................................... 18 REPOSSESSIONS ............................................................................................................................................ 18 BAD DEBTS .................................................................................................................................................. 19

OTHER ASPECTS OF THE BUSINESS ...................................................................................................... 19

GLOSSARY OF TERMS................................................................................................................................. 20

TAX STATUES AND ADMINISTRATIVE RULES ..................................................................................... 24

COURT CASES IMPACTING THE INDUSTRY.......................................................................................... 25

TAX INFORMATION PUBLICATIONS (TIP)............................................................................................. 25

TECHNICAL ASSISTANCE ADVISEMENTS (TAA) ................................................................................. 26

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OVERVIEW OF METHODS OF OPERATION

New Car Dealers

New car dealers are franchised by the manufacturer supplying the automobiles. The dealer purchases the cars from the manufacturer and places them in inventory. This inventory includes the cars of display, demonstrator vehicles used by the sales personnel, and the "executive cars" driven by the executives of the dealership. The dealer may also use vehicles from the inventory in conduct of business, such as delivering parts and accessories.

When a vehicle is sold, the dealer creates a file that includes a copy of the invoice and the buyer's order and any other pertinent documents. A second copy of the invoice is filed in a sales invoice file, usually in numerical sequence. An accounting copy, filed in the accounting department, contains additional information, printed on the reverse side of the copy. This information provides the basis for journal entries.

In addition to selling new vehicles, a new car dealer usually operates on-site repair facilities to perform warranty repairs, as well as general repairs, on vehicles made by a particular manufacturer or on other vehicles as required or requested. Dealerships may also operate auto body repair shops. They may also maintain a fleet of vehicles for long-term lease or short-term rental.

Used Car Dealers

A used car is usually acquired when accepted by a dealer as a trade-in toward the purchase of another vehicle. At the time of trade-in, the owner signs the title certificate, transferring ownership to the dealer. The dealer accepting the used vehicle may place it in inventory or may sell it, either to another dealer or at an auction, for the purpose of resale. When a vehicle is sold for resale, the selling dealer must obtain an annual resale certificate from the purchaser (See TAA 90A055).

Dealers that buy and sell only used cars may or may not maintain repair facilities or body repair shops.

Repair Facilities

Motor vehicle dealers operate repair shops to service and repair motor vehicles made by the franchising manufacturer. These shops range in size from large, complete repair facilities to small general maintenance shops. They make repairs covered by the manufacturer's warranty, as well as other repairs needed by their customers. When the dealer cannot provide the repair services needed by the customer, the work is usually subcontracted to a local repair facility specializing in the needed repairs. A dealer's repair shop operation is usually the most profitable part of the dealership. Some dealers may also operate separate paint and body shops. It is customary for each part of a dealer's option to prepare and control its own repair orders.

A franchised dealer also maintains a parts department to provide accessories and repair parts for use in the dealer's repair shop and for sale to other repairers and the general

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public. The dealer is the source of genuine repair parts for use on the particular motor vehicles made by a particular manufacturer.

Vehicles for Lease and/or Rental

Motor vehicle dealers usually establish subsidiaries, separate divisions to handle the leasing, or rental of motor vehicles. The volume of activity may range from a few cars made available to customers while their cars are being repaired to a fleet of cars aggressively marketed for lease to the general public.

ACCOUNTING SYSTEMS

Most new car dealers must use a standard, computerized accounting system from the manufacturer they represent. The standard system generates sales invoices, monthly general ledgers, and inventory reports and requests, as well as sales journals. The accounting system is similar to the systems of other retail sale entities. Due to the dollar value of the inventory, vehicle dealers usually maintain a perpetual inventory system. Each sale is accounted for and inventory is reduced with each sale made and increased with each purchase made. Independent used car dealers may have computerized accounting systems, but most have very simple manual systems consisting only of sales invoices and sales journals.

Sales at wholesale and retail are recorded in the same way. Usually, the computerized accounting system calculates and records the sales tax charged to the customer.

With regard to financing, dealers normally finance their inventory, most frequently through the manufacturer of the vehicles they sell or through an outside financial institution. The vehicles the dealer sell are usually financed by a third party, again, either an outside financial institution or a credit acceptance corporation owned and operated as a subsidiary of the vehicle manufacturer. In the case of independent motor vehicle dealers, those that are authorized may finance their own sales. These types of arrangements are referred to as "lot financing" or "buy here, pay here." In these situations, the process of repossessing vehicles and taking repossession credits must be properly accounted for because the same vehicle may be sold, repossessed, and sold again several times.

The accounting system of vehicle repair facilities is very similar to that of any other repair facility in that the property being repaired must be tracked for billing purposes and for identification purposes. The dealer must be sure that the customer is charged the proper selling price and that the correct property is returned to the correct owner.

The accounting system for repair parts is very similar to the accounting system for any high volume items. Inventory is usually maintained by the periodic method. There may be a picking system built into the accounting that alerts the salesperson to fill the customers order and check the inventory count for reorder. The system also calculates the cost and profit for the dealer as transactions are recorded.

Accounting for leased vehicles is similar to accounting for vehicle sales. As in the case of sales, leases may be arranged by third party financiers or by the selling dealer.

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REGISTRATION

If you regularly sell or lease motor vehicles to someone else, you must register as a dealer and collect sales and use tax (See 212.18, F.S., and Rule 12A-1.060, F.A.C.).

If you lease motor vehicles from someone else for the purpose of leasing to a third party, you are required to register as a dealer and collect sales and use tax. You must present a signed copy of your Annual Resale Certificate in order to lease vehicles tax-exempt.

If you own an out-of-state motor vehicle leasing company and lease any vehicles to persons in Florida, you are required to register as a dealer and collect sales and use tax.

Any out-of-state motor vehicle leasing company wishing to register a leased vehicle in Florida in order to obtain a Florida tag must register as a dealer and collect sales tax on the lease payments. The company must present proof of sales and use tax registration to the tag agency to exempt tax on the acquisition value. If the out-of-state leasing company is not registered with Florida for sales and use tax purposes, tax will be due upon registration of the leased vehicle in this state.

You can register to collect and/or report tax via the Department's Internet site. Go to dor and click on e-Services. If you do not have Internet access, you can complete a paper Application to Collect and/or Report Tax in Florida ((Form DR-1) See "For Information and Forms")).

After your registration application is approved, you will receive a Certificate of Registration (Form DR-11), an Annual Resale Certificate (Form DR-13), and your tax return forms. The Annual Resale Certificate may be used to purchase goods tax-exempt that will be resold in your regular business operations. If the goods purchased for resale are later used (not resold), you must report and pay use tax on those items, plus any applicable penalties and interest. There are additional liabilities for intentional misuse of a resale certificate.

Motor vehicle dealers that operate a vehicle repair facility at the dealership may purchase repair parts tax-exempt by providing suppliers with a copy of their Annual Resale Certificate. When parts are removed from the dealer's inventory to repair a customer's vehicle, the entire charge for the repair (including parts and labor) is subject to tax.

See Section 212.07, F.S. (See Rule 12A-1.039, F.A.C. and Gulf Capital Corporation vs. Florida DOR, 01-6-FOF; 01-0174, 9/25/01).

Motor vehicle sales or leases may be subject to the lead-acid battery fee, new tire fee, and rental car surcharge. For more information, ask for a Solid Waste and Motor Vehicle Fees brochure.

SPECIAL CONSIDERATIONS

The sale, use, or storage for use in this state of any motor vehicle is taxable on the full sales price, without any deductions for such components, as dealer's prep, federal

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manufacturer's excise taxes, freight, handling, delivery, commission, repossession, advertising, future free service, vendor's single interest insurance, or any other expenses or costs. The waste tire and battery disposal fees are also included in the taxable base. However, tag, title, registration, licensing, and lien recordation fees are excluded from the taxable selling price. The "Lemon Law," Motor Vehicle Warranty Enforcement Act (MVWEA) fee is also not subject to sales tax.

Collection and Computation of Taxes Due

The state sales tax rate is 6 percent. This rate should be used by applying the effective tax brackets to the taxable base to determine the amount of tax due. The tax is paid by the ultimate consumer and is collected by the retailer at the time of the sale.

To compute the amount of tax to be collected, a dealer must first determine the taxable base-the amount on which the tax is to be calculated. To determine the taxable base, the dealer must take into consideration the retail sales price, the amount of any trade-in allowance, and whether the sale qualifies as an exempt sale. Once the taxable base is determined, the applicable tax rate is applied to the taxable base to determine the amount of tax to be collected.

Alternative Method for Estimated Tax

Motor vehicle dealers may use an alternative method available to calculate their estimated sales tax. To qualify for the alternative estimated sales tax method; a dealer must have made at least one sale of a motor vehicle with a selling price of $200,000 or more in the previous state fiscal year. The state fiscal year is from July 1 through June 30. Dealers must apply before October 1 of each year and be approved by the Department to use this alternative method (See Section 212.11(4)(d), F.S. and TIP 98A-01-016).

Promotional Campaigns

Promotional campaigns, such as "Free tires for Life" associated with the sale of tangible personal property. As provided in TAA03A-029, the customer signs an ancillary contract, "Free Tires for Life Statement," at the time of the sale, evidencing the acceptance of the terms contained with that contract, then such contract is a part of that agreement to abide by the terms and conditions stated therein. Accordingly, as part of the agreement to the vehicle exclusively serviced by the dealer, pursuant to the schedule provided in the manufacturer's owner manual including one alignment every 15,000 miles which ever comes first, the cost of the free tires provided, to the dealer's customer, is included in the taxable "maintenance charge" for servicing the vehicle. Thus, the dealer does not owe any use tax on the replacement tires. The dealer will be subject to the $1.00 waste tire fee, as a charge to the dealer for the privilege of engaging in the business, pursuant to the provisions of Sections 403.718, F.S., Rule 12A-1.001(6)(b), F.A.C., and TIP 03A01-20.

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Guaranteed Auto Protection (GAP)

Guaranteed auto protection offered to individuals who finance a motor vehicle is not subject to sales tax. GAP insurance offers protection against financial liability for an individual who has financed a new or used vehicle to obtain insurance for paying the difference between the outstanding loan balance and the actual cash value of a financed vehicle that has been declared a total loss due to an un-recovered theft or physical damage. Applying the tests used by the court in Department of Revenue v. B & L Concepts, 612 So.2d 720 (Fla. 5th DCA 1993), GAP is not part of the "sales price" and therefore, is not subject to sales tax (See TAA 02A-044).

Trade-in Allowances

Sales tax should be computed at the rate of 6% of the total sales price of a motor vehicle, minus any trade-in allowance, pursuant to Section 212.09, F.S., and Rule 12A-1.007(1)(b), F.A.C.

The amount of the trade-in allowance or credit is deducted from the sales price of the new or used vehicle before computing the amount of the tax due (See Section 212.09, F.S.). When the amount of the trade-in allowance against the sales price of a motor vehicle is equal or exceeds the sales price of the motor vehicle being purchased, such as an "even trade" or "trade down," no tax is due (See TAA 88(A)-293).

The owner of the trade-in does not have to be the purchaser of the motor vehicle receiving the benefit of the reduction in sales price. The owner must approve of the trade-in.

Sales of Vehicles to Residents of Other States

The Florida Statutes allow a partial exemption from sales tax to purchasers who are residents of other states. The selling dealer must collect sales tax on the sale of the vehicle based on the sales tax rate for such a transaction in the state where the vehicle will be registered (See current and past TIP's on Motor Vehicle Sales Tax Rates by State and Credit Application). The purchaser must provide the selling dealer with a notarized statement that the vehicle will be registered in the other state within 45 days from the date of purchase (Form DR-123, Affidavit for Partial Exemption of Motor Vehicle Sold for Licensing in Another State.). The partial exemption does not apply if the vehicle is purchased by a nonresident corporation or partnership when an officer of the corporation is a resident of this state, a stockholder of the corporation who owns at least 10 percent of the corporation is a resident of this state, or a partner in the partnership who has at least 10 percent ownership is a resident of this state. However, if the Non-resident Corporation or partnership removes the vehicle from this state within 45 days of purchase and does not bring it into this state within 180 days, the partial exemption may apply regardless of the residency of the owners or officers of the purchasing entity (See Section 212.08(10), F.S., Rule 12A-1.007, F.A.C., and TIP 97A-01-25 on how to report these sales on the sales and use tax return (DR-15)).

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